1.Henry, a tax resident of Australia, was a famous jazz singer who passed away recently. Jack, a publisher was interested on Henry’s life story and wanted to write a bibliography on Henry’s life. Jack approached Henry’s wife, Jenny (also a tax resident of Australia) to interview her on Henry’s life story. She was offered $1 million for Henry story. Jenny was paid $500,000 deposit before the interview. After the interview she was paid the balance of the money.
Would the tax consequences have changed if Jenny had written the book herself?
Advise Jenny on her tax consequences.
2.Sally is a single parent who is employed as an accountant. In order to attend employment she must put her young child in a day-care centre. Sally considers the expense is necessarily incurred in gaining her income. Would she be entitled to a tax deduction under s8-1?
Required
Advise Sally of her tax consequences
3.Joseph conducts an plumbing business. With a view to future retirement he purchases 20ha of land and plants native wildflowers that he plans to harvest and sell. As a preliminary measure he arranges to clear the land and plough in compost. It is expected that the first commercial crop will not be harvested for five years. He incurs interest on a loan to finance the land purchase, land preparation costs, fertilizer costs and costs of acquiring native seedlings.
Advise Joseph of the tax consequences of the venture.
Is the receipt by Jenny based on “rewards for service” taxable as income from ordinary concepts under the “section 6-5 of the ITAA 1997” for making an appearance in the media interview?
The character of an item as income should be judged based on the circumstances of the derivation by the taxpayer. To possess the character of income the item should be in the form of gain by the taxpayer that derives it (Pinto, 2013). “Section 6 of the ITAA 1936” explains that income from individual effort refers to the income that are received from the salaries, wages, pension, gratuities, fees or any kind of business proceeds that is acquired by the taxpayer.
Majority of the income that is acquired by an individual taxpayer is characterized as the ordinary income under “section 6-5 of the ITAA 1997” (Woellner et al., 2016). As held in “Scott v Commissioner of Taxation (1935)” the expression income cannot be termed as art and requires appropriate applications of principles in determining how the receipts have to be treated as earnings and should be determined in agreement with the ordinary concepts.
The case study provides that Jack who is publisher expressed the interest of knowing regarding the life of Henry a famous jazz singer that passed away. A successful approach was made by Jack to reach the deceased singer’s wife Jenny and offered her $1 million for narrating the story of her late husband. Prior to sitting in an interview Jack also paid Jenny with an advance of $500,000. An item having the character of income comes home on the event of deriving such income by the taxpayer. To possess the character of income it should be a gain for the taxpayer (Barkoczy, 2016). An item having the income character which is derived will be characterised as income on the basis of the realisable value.
The advance payment of $500,000 and the $1 million that is made by Jack to the deceased husband of Jenny possess the character of income since it has come home for the taxpayer. The sum paid to Jenny has the character of income and the same is regarded as gain as the taxpayer has derived the income beneficially.
Denoting the judgement that was made in “Brent v Federal Commissioner of Taxation (1971) ATC 4195” the taxation commissioner held that the train robber wife was provided the special right of publishing the story of her life (Tan et al., 2016). The amount that was received for such interview in the media company was viewed as the “reward for service”. The receipts was considered for taxation purpose based on the ordinary conceptions of the “section 6-5 of the ITAA 1997”
The amount of $500,000 and remaining sum from $1 million constitutes income as “reward for service” for Jenny which is held assessable as income from ordinary concepts under “section 6-5 of the ITAA 1997”. This is because there was sufficient association between the receipts and the provision of service namely the reward that is received by her.
On an alternative situation if the decision was undertake to write the story by Jenny herself, then the publications of such book would be regarded as royalties from the biographies. Citing the decision of law court in “Hobbs v Hussey (1942) 24 TC 153” the taxpayer was the criminal and a sum of £1500 was received by the taxpayer just because of selling the rights to the newspaper article for publishing the taxpayer autobiographies (Long et al., 2016). Likewise, if an alternative decision of wring the book was taken by the taxpayer then the income that would be derived from such publications by Jenny would be held as royalty income and same would have been liable for taxation.
Conclusion:
Convincingly, the receipt of income from television appearance possess the character of income for Jenny. The income would attract tax liability based on the “section 6-5 of the ITAA 1997” as income from ordinary concepts. An alternative decision of writing the book on her husband would have resulted in royalties from the sale of publications and would be subjected for assessment under “section 6-5 of the ITAA 1997”.
Is the taxpayer under “section 8-1 of the ITAA 1997” entitled for a permissible deductions from her assessable income relating to the payment made to child day-care centre?
“Section 8-1 of the ITAA 1997” lay down two positive limbs that offers the taxpayers with the facilities of claiming deductions from their taxable earnings for any sum of loss or outgoings till the extent that they are occurred in acquiring or producing the taxable income (Cao et al., 2015). Furthermore, an individual taxpayer is allowed to claim deductions relating to the expenditure which is occurred by the taxpayer necessarily in course of their business activities with the intent of gaining or producing their taxable income.
“Section 8-1 (2) of the ITAA 1997” lay down four negative limbs which does not permits a taxpayer from claiming deductions relating to the cost that are capital or having the characteristics of capital or the expenses are private in nature (Saad, 2014). An individual taxpayer is permitted to claim for the allowable deductions up to the extent that the expenses are in producing the exempted or the non-taxable non-exempted income or the provision of the act prevents the taxpayer from deducting any expenditure from their taxable income.
The scenario obtained from the case provides that Sally who is by profession an account and a single mother is required to keep her child in day care centre so that she can attend her work. As a consequence to this she incurs a day care expenditure for her child. Referring to the “section 8-1 (2) (b) of the ITAA 1997” where a taxpayer incurs any outgoings that has the nature of private or domestic might not be permitted as deductions since it does not fulfil the conditions of either the positive limbs or such outgoings is not permissible as deductions under the second negative limbs.
Citing the judgement of the taxation commissioner in the case of “Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478” is it essential to look into the characteristics of the earnings even though the outlays forms the indispensable requirement to the source of taxable returns (Robin & Barkoczy, 2018).
The taxation commissioner in “Lodge v Federal Commissioner of Taxation (1972) ATC 4174” did not allowed the taxpayer from claiming allowable deductions relating to the childcare expenditure because it does not have any relevance in obtaining the taxable income (Robin, 2017). Likewise in Sally situations the childcare expenditure that is incurred prior to attaining her work is held as neither relevant nor considered as incidental in the derivation of Sally’s taxable income. The child day-care expenditure is more of private or domestic in nature which cannot be allowed for deductions under “section 8-1 of the ITAA 1997”.
Conclusion:
The analysis conducted above provides that the child day-care expenditure does not meets the criteria of the positive limbs and nor it is allowed for deduction under the second negative limbs of the “section 8-1 (2) (b) of the ITAA 1997”. Therefore, no deductions is allowable to Sally under “section 8-1 of the ITAA 1997”.
Does the activities of the taxpayer represents execution of business activates and whether the profits from the isolated transactions is subjected for assessment under “section 25 (1) of the ITAA 1936”?
As defined in the “taxation ruling of TR 92/3” a guidance has been provided in understanding whether any sort of profits made from the isolated transactions would be classified as income and therefore, under “subsection 25 (1) of the Income Tax Assessment Act 1997” the profits are regarded as taxable (Oishi et al., 2018). Isolated transitions is viewed as those transactions that are not within the ordinary course of the taxpayer executing the business and signifies certain transactions that entered by the non-business taxpayers.
The scenario depiction from the case study of Joseph provides that he was performing the business of plumbing. However, it is learnt that he bought a twenty hectare of land to plant native wildflowers and selling those wildflowers to the market. Joseph undertook the steps of clearing and ploughing the land. Although the initial idea was not to cultivate or harvest commercial crops in five years but reported expenditure on loan, acquiring seedlings and expenses on fertilizers.
According to the judgement made in “Federal Commissioner of Taxation v The Myer Emporium Ltd (1987) ATC 4363” it was held that an interest bearing loan was made by the taxpayer to receive interest in return of the lump sum (Bankman et al., 2017). The taxation commissioner by relying on the second strands to decide the motive of the taxpayer for was to derive income and sum received as interest was regarded as income.
The ruling explains that the profits from the isolated transactions is regarded as income under the ordinary concepts. The “taxation ruling of TR 92/3” provides explanation that the intention of the taxpayer to enter into such transactions was to derive profit (McDaniel, 2017). The explanations provides that relevant purpose of the taxpayer is not regarded subjective but it is the intent which is discerned from the isolated transactions surrounds the settings of the event (Schenk, 2017). The taxpayer usually have requisite purpose of entering into the isolated transactions. Similarly, in case of joseph the transactions that was entered into had the profit making purpose with commercial nature.
As laid down in “Blockey v Federal Commissioner of Taxation (1923)” it was held that the profit from the purchase and sale of wheat scrip was an isolated transactions and the same was taxable (Pope et al., 2017). Likewise for Joseph the land was bought with the intention of making profit and cultivation of wildflower to sale those in the market reflected commercial business.
Conclusion:
As understood from the above discussion profit making purpose was relevant when land was bought by Joseph and harvesting of flower for selling them to market was accompanied with profitmaking objective. The income from the sale of wildflowers by Joseph represents profit from isolated transactions and accounted as executing the activities of business.
Reference List:
Bankman, J., Shaviro, D. N., Stark, K. J., & Kleinbard, E. D. (2017). Federal Income Taxation. Wolters Kluwer Law & Business.
Barkoczy, S. (2016). Foundations of taxation law 2016. OUP Catalogue.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., … & Wende, S. (2015). Understanding the economy-wide efficiency and incidence of major Australian taxes. Canberra: Treasury working paper, 2001.
Long, B., Campbell, J., & Kelshaw, C. (2016). The justice lens on taxation policy in Australia. St Mark’s Review, (235), 94.
McDaniel, P. (2017). Federal Income Taxation. Foundation Press.
Oishi, S., Kushlev, K., & Schimmack, U. (2018). Progressive taxation, income inequality, and happiness. American Psychologist, 73(2), 157.
Pinto, D. (2013). State taxes. In Australian Taxation Law (pp. 1763-1762). CCH Australia Limited.
Pope, T. R., Rupert, T. J., & Anderson, K. E. (2017). Pearson’s Federal Taxation 2018 Corporations, Partnerships, Estates & Trusts. Pearson.
Robin & Barkoczy woellner (stephen & murphy, shirley et al.). (2018). Australian taxation law 2018. Oxford University Press.
Robin, H. (2017). Australian taxation law 2017. OXFORD University Press.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.
Schenk, D. H. (2017). Federal Taxation of S Corporations. Law Journal Press.
Tan, L. M., Braithwaite, V., & Reinhart, M. (2016). Why do small business taxpayers stay with their practitioners? Trust, competence and aggressive advice. International Small Business Journal, 34(3), 329-344.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation Law 2016. OUP Catalogue.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download